A D NOW WE COME ESTABLISHMENT COSTS
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A High Percentage of the Annual Expenditure— Enough to Cancel Out All the Alleged Profit of a Rate-cutting Haulier
Example Based on a Payload Capacity of 30 Tons, Which Gives a Cost per Ton of Pay-load of
10s. 6d.
A. POINT which I might have made last week, but did not, was the way in which a number of small, seemingly negligible, items of expenditure nevertheless makes, in the aggregate, a considerable sum per
annum. .
Those who read that article, or can refer to it, will remember that the schedule of expenditure on account of "maintenance (d) " was largely made up of :threepences, sixpences and shillings. Yet the total, including, I will admit, three larger amounts, came to over £40 per -annum, id. per mile in th6 case oi a vehicle covering 10,000 miles in a year, (I recall a number of operators telling me, quite seriously, that the maintenance costs of their 5-ton vehicles did not exceed Id. per mile! ! 1) Yet there are many small operators who practically ignore that side of maintenance, considering it worth while to record only the cost of repairs and overhauls which totalled 1.22d. per mile. In effect, therefore, such operators are omitting to allow for nearly half the coat of maintenance.
As with maintenance, so with establishment costs, only, as the saying goes, "more so," for the sum total of all the small items which go to make up establishment costs, items individually so small that many operators do not believe they exist at all, can, in the case of small mileages. be as much as 3d. per mile or much more. And 3d. per mile was, in pre-war days, regarded by many operators as an ample margin of profit. Consider What happens to the profit if the haulier has disregarded his establishment charges. , With this article is reproduced my schedule of establishment costs as applied to' the business of the small haulier. .
In drawing it up I have applied the principle which, for more than 30 years, has been behind "The Commercial Motor" Tables of Operating Costs. That is,. by enumerating all the essential items, and insisting that something be debited to each, I ensure that nothing is overlooked, as it might, and prObably would be, if several of them were lumped together, as is frequently the practice.
Figures That Will Cause Surprise What I want every reader to do is to go with me carefully through the list, think with me about each item, and conscientiously put something down for each, finally checking the result with mine. I will guarantee that the majority will be surprised, someof them even shocked, at the outcome.
First, office rent. In the case of a small man this may be a room at home or even a corner of the garage partitioned off. There must be room for telephone, desk, files and so on, and a minimum allowance for this accommodation is 5s. per week. Alternatively, the operator may be "office proud" and wishful to have some place in which he could meet customers, and so on, in which case an allowance of 10s.. per week will be fair. That gives us a minimum of £12 10s. and a.maxirnurn of £26 with a probable average of £15. It should be appreciated that the. figures given for these minima and maxima are -approximate only, Absolute accuracy is not only impossible, but, in all the circumstances, absurd.
For office rates we can take 'a minimum of £5 and maximum of £12 and an average of :27.
Next -come lighting and power—the total for all the premises. The electric-light bill will probably be, at the very least, £2 per quarter for tha two winter quarters, but may be down to £1. for the remainder of the year, giving us a total of £5. It may be as much as £7 10s. and we, might take £6 as the probable. For power we have to consider how much will be spent on driving machinery, and this is particularly difficult to assess. I propose to take a minimum of £2 and a maximum of EH) with a probable mean of £6. For lighting and power, therefore, we have the sum of the above which is £7 minimum, £17 10s. maximum and a probable of £12.
Heating comes next. This may mean expenditure on coke, gas or electric current, It will be fair and reasonable to assume an operator will spend in a year, and ad' much as £10. As a am taking £8. not less than £5 probable mean I Water and Telephone Calls
Water is probably not-a big item. Where much washing is done it is usual for this to be metered and paid for according to the quantity used. I have taken a minimum of £1 and a maximum of £4, and a probable mean of £2 10s.
With regard to the telephone, if I take the minimum of three calls per day, or 18 per week, that is Is. 6d., to which I add 2s. 6d. per week as an average spent on trunk calls to get a total of 4s., which is £10, to which must be added £3 for rental, giving a total for the minimum of £13.. It is more likely that the average number of local calls. will be six per day, giving us 3s. per week, and trunk calls will cost not less than 5s. per week, so that our total will be £20 per annum for calls plus £3 rental, total £23. I have taken £19 as a mean.
I will not spend any time discussing audit fees, but go quickly to the next item, law costs. With licence renewals recurring at five-yearly intervals, the operator's expenditure on this item should diminish at least as compared with what it was before the war. On the other hand, no one can foresee haw things are going to go after the war, and it may be that many will wish to apply for additional tonnage. How much they will have to expend on legal adv'ice and assistance will naturally de,pend on the objections that are raised. Some provision should be made in budgeting the law costs in the way of insurance against heavy and unexpected expenditure. and I do not think that I am far wrong in assessing this item as set down in Table 1, namely, to be at least £2 2s. per year, possibly £5 5s_, and probably 23 3s.
The item, sundries, in any set of accounts, covers a multitude of Sins. Occasional disbursements, tips, entertalnin,g, petty cash and so on, may be anything from 5s. to 21 per Week on the average, and so I have entered in the Table the minimumuiof £12 !Os. and a maximum of £50 with a probable mean of 230.
In connection with fines, I have a feeling that, after the war, this is going to be a not inconsiderable item, particularly during a period when traffic is becoming more and more congested, and while so many new car owners are coming on the road. There will also be a large number who have not driven a car for five years and will, therefore, be out of practice.
In addition, it can be expected that the law will be more strict in the
matter of speeds and %weights., there will be more rigid inspection of vehicles, and more extensive use of police patrols, and so on, in the endeavour to curb the inevitable tendency to a high accident rate which will develop as road traffic becomes denser. On this account I have fixed a probable minimum of £5 and a maximum of 220. but taken a mean as being 215:
A Car is Essential • Travelling expenses mean, as to most of them, the use of a car for getting about to see customers, running out in, the event of a vehicle bwakdown, and all the sundry little jobs which a haulage contractor must do and for which he must use a car. Now I defy anyone to run a car of any sort on less than 21 per week.
Actually, if any considerable mileage be run it will cost double that, and there will be other expenses as well, so I am going to assume that the minimum will be £50, the maximum £120 and the mean probably 2.90, Now comes clerical wages. No man can be in two places at once, and the haulier must, therefore, have someone in his office to deal with telephone calls, take and give messages and, in the meantime, do a little typing and clerical work. It is false economy to try to do without such assistance.
In some casts the elementary nature of the work and the fact that the operator is not in the habit of spending a long time away from his office, may make it possible for him to "make do" with a junior at about £2 10s. per week. On the other hand, he may find it worth while to get someone .a little older and more experienced, in which case he might have to pay 26. I will take 25 as a probable mean. That means that the annual amounts will be roughly 2130 minimum, 2312 maximum and an average of 2260, The item National Insurance (clerical staff), needs no argument, and I come next to directors' fees which, in this case, mean the amount which the operator pays himself as manager of his own business. I assume he will not accept less than about 22 per week, and that he is more likely to think in terms of about 25 per week. I have, therefore, taken the round figure of 2.100 per annum as minimum, 2250 as maximum and £200 as probable.
As to depreciation of garage fixtures,, this requires some consideration of the sort of equipment the small operator must have. He will probably have a petrol pump and/ or oil-fuel tanks with pumps. He will have a power-operated tyre pump, jacks, electric-light fittings, stoves, lubricating,oil pump, as, I should think, minimum equipment.
Assuming that the value is about £100 he must debit 25 per annum as the smallest contribution on account of depreciation. In a better-equipped garage the value may be £250, and the depreciation 212 10s., with a probable mean of 210 per annum.
As regards subscriptions to associations, I am taking it that he is a member of R.H.A. to which his total subscription will be £6. He may also be a member of other associations, in which case his expenditure under this head will approximate to 210, so I have takenia probable mean of 28 per annum.
For bank charges, say a minimum of 25, maximum of 210, probable mean of 28.
Charge That Depends on Area of Operation What he spends on ferries, weighbridges and parking depends very considerably on the locality and whether he has to make use of such thoroughfares as the Mersey Tunnel, for example. His expenditure may be as little as 21 per year, but, on the other hand, it may even be in excess of the £12 which I have assumed as themaxi mum. think 25 per annum is a reasonable figure to take as the mean.
As regards interest on hire-purchase, this may be nothing at all, of course, as in the case of the operator who looks upon the item depreciation as a sinking fund and carefully deposits the full amount in the bank each week so that when the time comes he can buy a new lorry without having to borrow. Such operators, however, are in. the minority, and the amount due on interest may be anything from £10 to £50 per annum, taking £20 as the, mean.
As regards printing and stationery, this does not mean merely envelopes. billheads and printed notepaper, but includes drivers' log sheets, report sheets, account books and things of that kind. That is why I have taken a minimum of 23, a possible maximum of 210 and a mean of £5.
That, I think, is as far as I 'need go in the detailed examination of the items of establishment expenses. I would sincerely recommend operators to check the above figures and those in Table I to see how far their own actual experience of recorded' costs differs. If anyone has any criticisms to offer, friendly' or otherwise, I shall be glad to have them, and will deal with them faithfully.
I have assumed that the operator to whorn•these figures apply has four vehicles, two 5Ltonners, one 8-tonner and one 12-tonner, giving a total pay-load capacity of 30 tons. It is of interest to note that, on that basis, the amount of establishment costs per ton of pay-load per week is, according to the maximum figures; 14s. 6d., and, according to the average figure, 10s. 6d. This, for vehicles which are on local work only because there is no provision in the foregoing assessments for the expendi ture incurred by long-distance operators S.T.R.